By Paolo von Schirach
July 29, 2013
WASHINGTON – Until a few years ago, outside of a very small circle of US energy industry practitioners, nobody had ever heard of “shale gas”, “shale oil” or “hydraulic fracturing”, (now better known as “fracking”). And even smart analysts were unable to appreciate the impact of the economic transformation that the exploitation of shale gas was about to bring about. Indeed, as late as 2008, well-regarded energy experts were predicting sky-high natural gas prices in America and the need to import gas because of the rapid depletion of our dwindling reserves.
The revolution came
Well, just a few years later, it is all upside down. Yes, thanks to shale gas, America is now a leading world natural gas producer. As a result of this shale bonanza, America’s prices are about $ 3 to 4 per million btu, while in Japan the price for natural gas is about $ 16. This enormous differential created a major economic advantage for US energy intensive industries, making them more competitive world-wide.
Implications of shale gas not yet fully understood
However, even though the “US Shale Revolution” is unfolding, the extent of its value has not been fully understood. For instance, we are still far from embracing Liquefied or Compressed Natural Gas (LNG, CNG) as the obvious, cost-effective alternatives to expensive diesel fuel for heavy trucks. The economic advantages are obvious, but the policy incentives aimed at speeding up an economically advantageous transition to LNG/CNG are not there. In other words, change is not understood as early and as well as it should be.
Methane Hydrate: the new magic energy source?
Indeed, it seems very difficult, even for key market players, to fully appreciate the relevance and impact of epochal disruptive changes. That said, if we had so many problems in embracing fracking, how about appreciating the possible impact of the successful exploitation of abundant “methane hydrate”? Yes, this seems to be another, totally new, hydrocarbon frontier. We are talking about enormous quantities of methane gas trapped in frozen deposits located in permafrost areas and at the bottom of the sea, all over the world.
At the moment the recovery technologies are still not advanced enough to make drilling for this enormous amount of energy economically viable. But remember that the same was said about fracking: “It is too expensive. It is too dangerous. It will never work”.
Japan is leading
For the moment, the Japanese are ahead of the pack in testing technologies that will allow the recovery of methane hydrate from the sea floor. They are actually doing it, although only on an experimental basis. Of course, energy starved Japan would have a lot to gain from the development of its own energy sources. But North America also has enormous deposit of this new energy.
ConocoPhillips has been involved in an experiment aimed at extracting methane from a deposit in Alaska. The consensus is that for the time being the processes currently available are way too expensive, and therefore unable to compete with the exploitation of abundant shale gas.
Keep an eye on developments
But I would keep an eye on ongoing efforts pursued by Japan and others. Ingenuity and persistence gave us shale gas. It is not be excluded that soon enough we shall be talking about the “Methane Hydrate Revolution” that will transform Japan’s –and possibly America’s– energy future.